Private Lender vs Bank for Investment Property

A bank is almost always the right answer when you qualify. Lower rates, longer terms, and no exit pressure at 12 months. The problem is not that banks are bad lenders. The problem is that their credit models are built for salaried individuals with two years of clean tax returns, and when a corporate borrower falls outside that model, the application fails regardless of the deal quality. Private lending exists to serve the situations where the underlying transaction is sound but the borrower does not fit the bank template.

This page sets out an honest comparison. If your situation is better suited to a bank, we will tell you that. If a bank cannot or will not help within the timeframe you need, we can.

How the Assessment Differs

Banks build their assessment around income. They require two years of financials for the borrowing entity, apply a serviceability buffer of approximately 3% above the loan rate, and apply debt-to-income caps that are independent of asset quality. The income assessment is not a guide -- it is a hard filter. A company with $2M in property and $800,000 in equity can still be declined if the income figure, stress-tested at 9.5%, does not cover the repayment schedule.

Private lenders assess the security property, the LVR, and the exit strategy. Income is contextual rather than determinative. For a short-term facility where the exit is refinance to a bank or property sale, the core question is whether the property supports the loan amount and whether the exit is credible and documented. That produces a different result for many corporate borrowers.

Speed

A bank application for a company or trust investment property loan typically takes 3 to 8 weeks from submission to approval. SMSF LRBA applications can take 8 to 12 weeks. During that time, vendors may refuse extensions, auction settlement windows close, and time-sensitive opportunities pass. Private lenders assess the same day for complete enquiries, with settlement achievable within 24 to 72 hours for clean deals.

Entity Structures

Banks have become progressively more cautious with company, trust, and SMSF borrowers. The income model works cleanly for PAYG employees. It does not work cleanly for directors who retain profits, trusts that distribute income variably across beneficiaries, or SMSFs where fund income does not service a standard repayment schedule. Private lending is structured specifically for these entities -- the borrower must be a Pty Ltd company, family trust, or SMSF. Individual borrowing in personal name is not available.

Cost

Banks are cheaper. This is not a close comparison. A bank investment property loan for a well-qualified borrower is priced materially below private lending rates. Private lending adds a premium for speed, flexibility, and the absence of an income floor. That premium is the right trade-off when the deal would not otherwise proceed, or when the cost of a bank delay exceeds the cost of a private lending term. It is not the right trade-off as a permanent financing strategy for deals that could qualify at a bank with more time.

When to Choose a Bank

• •The borrowing entity has two or more years of financial statements that satisfy the bank's serviceability model
• •There is no time pressure -- the transaction can wait for a 4 to 8 week approval process
• •The loan is intended as a long-term facility for ongoing investment property ownership
• •The borrower wants a rate below what private lending can offer

When Private Lending Makes More Sense

• •Settlement is required within days rather than weeks
• •The company or trust income structure does not satisfy a bank serviceability test
• •The bank has declined or stalled and a deadline is approaching
• •Documentation for the current financial year is not yet available
• •A short-term facility is needed to bridge to a bank at the end of the term
• •The borrower needs to act on an opportunity quickly before arranging longer-term financing

Three Deals Where the Comparison Mattered

A family trust had a bank application in assessment for six weeks on a $1.15M residential investment property purchase. Settlement was 42 days from exchange. The bank would not commit to approval in time and the vendor refused a further extension. We assessed the deal within hours of the enquiry, issued a term sheet the following morning, and settled on day 38. The trust refinanced to the bank eight months later once the bank completed its approval.

A Pty Ltd company with two investment properties wanted to access $420,000 in equity to fund a business acquisition. Its bank could not process a cash-out refinance in the required timeframe and would not lend to the company structure at the LVR required. We assessed on the security, provided a 9-month facility, and the company completed the acquisition on schedule. At month seven the company approached two specialist non-bank lenders and refinanced to a lower long-term rate.

An SMSF purchased a residential investment property at auction with a 35-day settlement. Its specialist SMSF bank lender required a minimum of 10 weeks. We bridged the gap with a 90-day facility under the LRBA structure, the specialist lender completed its approval, and the fund transferred to its long-term facility without missing the settlement date.

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